JFE Plan to Buy Scrap Steel May Boost Metal Prices in Japan

JFE Steel Corp., Japan's second- largest steelmaker, may start buying high-quality scrap to boost production, likely driving up prices and squeezing profits at Daido Steel Co. and Aichi Steel Corp. that rely on scrap as a raw material.

JFE, which previously used scrap steel from its own plants, ``will probably start buying from the market,'' Hajime Bada, who becomes president of the company on April 1, said in an interview in his Tokyo office on March 17. Because of a shortage the company has stopped supplying affiliates with scrap, he said.

The company will join Japan's largest steelmaker Nippon Steel Corp. in purchasing from the market. Nippon Steel buys about 2 million tons of scrap from the market a year, spokesman Masato Suzuki said.

By adding more scrap, blast-furnace steelmakers like JFE and Nippon Steel, which make the alloy from iron ore and coking coal, can increase output without investment in new facilities. Scrap can account for a maximum of 15 percent of total steel output. JFE used 5 percent scrap in the year ended March 2004.

``If JFE really goes in to buy scrap, this will have a large impact on prices,'' said Moriji Kanada, CEO of Metal One Corp., which handles about one-sixth of Japan's scrap trading volume and is the country's largest steel trader.

Ritsuo Takekoshi, a spokesman at Daido Steel declined comment on the impact of JFE's scrap purchases. Eiji Nishioka, a spokesman at Aichi Steel would not comment when contacted by phone and didn't respond to an e-mail seeking comment.

``Supplies of high-grade steel scrap will become even tighter'' if JFE starts buying, said Atsushi Yamaguchi, an analyst at UBS Securities Japan Ltd., who is ranked Japan's top metal analyst by the Nihon Keizai business newspaper.

JFE plans to raise output to 29 million tons next year, from an expected 27.5 million tons on an unconsolidated basis for the year ending March, Bada said. Bloomberg